ESSPROS Task Force on Methodology November 2017

Transcription

1 EUROPEAN COMMISSION EUROSTAT Directorate F: Social statistics Unit F-5: Education, health and social protection Luxembourg, 31/10/2017 DOC SP-TF Annex ESSPROS Task Force on Methodology November 2017 Comparison of expenditure for social benefits between ESSPROS and national accounts (updated version: 31 October 2017 (*)) (*) changes compared to the version of 22 March 2017 are highlighted Meeting of the ESSPROS Task Force on Methodology Luxembourg, November 2017 BECH Building (Eurostat) B2/464

2 2

3 EUROPEAN COMMISSION EUROSTAT Directorate F: Social statistics Unit F-5: Education, health and social protection Luxembourg, 22 March 2017 DOC SP Annex 1 ESSPROS Expert Group (1486): Working Group Social Protection statistics 4-5 April 2017 Links and differences between ESSPROS and the National accounts Item 8.8 of the Agenda 3

4 DRAFT Version 31 October 2017 Links and differences between ESSPROS and the National accounts Methodological aspects 1. Introduction This document compares the methodology contained in the European system of integrated social protection statistics (ESSPROS) manual and users' guidelines, ed (quoted as EM, I or II, #) and the national accounts methodology, contained in the European System of Accounts of 2010 (quoted as ESA 2010, #), for the part that is relevant for ESSPROS 1. The first manual on ESSPROS was published in 1981 and the manual was subsequently updated and the last edition was published in Concerning ESA, the first edition was in 1979 and the second edition in The ESA edition 2010 was approved in 2012 and entered into force in Since its first edition the methodology of ESSPROS has been conceived to be as much as possible consistent with the national accounts, so as to provide detailed data on social protection that can be positioned in the broader picture of an economy as given by the national accounts. This is an approach in line with the satellite accounts later recommended in the SNA 2008 and in ESA Therefore, if only for the changes introduced in the national accounts methodology by ESA 2010, it is important to review the links and the differences between ESSPROS methodology and the national accounts methodology. Firstly, there is a clear need to update the manual of ESSPROS that still refers to ESA Secondly, there are specific changes introduced by ESA 2010 concerning topics for which ESSPROS has adopted the treatment of ESA Concerning the parts that are relevant for social protection, the main differences between ESA 1995 and ESA 2010 can be grouped and summarised as follows: 1) Changes to chapter 4 on Distributive transactions, which treats in particular social benefits and social contributions. 1 In particular, the national accounts methodology treats social benefits and social contributions among redistributive transactions, in the secondary distribution of income account that presents disposable income as balancing item. This is covered in chapter 4 of ESA Also chapter 17 of ESA 2010 is relevant for social protection. 2 Indeed ESA 2010 presents a possible satellite account for social protection in

5 The main changes regarding social benefits consist in a different breakdown for social transfers in kind and in the introduction of sub-items for social benefits distinguishing between pension and non-pension benefits. For social contributions, the main changes regard the calculation of employers' contributions and the introduction of the new category of households' social contribution supplements. A breakdown between pension and non-pension has been introduced also for contributions. 2) Introduction of a new chapter 17 on Social insurance including pensions. This chapter treats social insurance carried out by social insurance schemes, with a particular focus on pensions. The chapter contains accounting tables for various types of social insurance schemes. The tables describe the treatment of flows of social insurance schemes. A Supplementary table on pension entitlements in social insurance has been introduced in ESA 2010 that presents opening and closing balance sheets for pension entitlements and their changes due to transactions, revaluations and other changes in volumes. 3) Social protection accounts are introduced in chapter 22 of ESA 2010 as a case of satellite accounts. Their main characteristics and links with the concepts of the central system are described. Table introduces a possible presentation of social protection benefits broken down by function, control, and types of benefit. 1.1 Structure and purposes In this document, section 2 reviews the main concepts used by the two systems and contains a summary presentation of the theoretically possible sources of differences between the data recorded by the two systems. The following parts use these various elements to analyse in more detail the possible differences for each type of transaction recorded in ESSPROS. Until now, only the part on expenditures has been developed in section 3. Section 3 therefore covers in more detail the main category of expenditure, social benefits, but also the other categories of expenditure: administration costs, re-routed social contributions and other transfers between schemes. Besides the work of methodological review needed in particular to update the manual of ESSPROS, an important objective of this document is to provide a common basis and a support for data comparison in the context of ESSPROS. In particular, the summary contained in table 4 is structured to be a guide for data comparison 3. Work at the ESSPROS methodological task force on validation rules at an aggregate level for social benefits 4 has concluded that further analysis is needed, at a more detailed level, to assess if the differences in data that are to be expected because of conceptual differences fully explain the actual differences that are observed. In particular, a further step that is proposed is to carry out more detailed data comparisons with data for government expenditure by COFOG, available from national accounts. There is high consistency between the 8 ESSPROS functions for social protection and some COFOG functions. Data by COFOG can therefore be used to quantify the part of government benefits that in national accounts statistics 3 For the time being data comparison is focused on expenditure. 4 Presented to the Working Group social protection in April

6 is included or not in the scope covered by ESSPROS. In addition, comparison of benefits data at function group level is also possible for government benefits and data consistency (or, at least, the lack of clear inconsistencies) is of high importance for major users of ESSPROS and national accounts social protection data such as DG EMPL. This more detailed level of data analysis can also be used by compilers to orientate their work to those areas in which inconsistencies are identified. 6

7 2. Overview of possible sources of differences The methodology of ESSPROS refers in several places to the links with national accounts, starting from the introduction. EM I 7 says that one of ESSPROS main objectives is to provide a comprehensive and coherent description of social protection, covering social benefits and their financing, in a way that is harmonised with the national accounts main concepts. EM I 12 refers explicitly to the links with national accounts, although it also mentions that there is not a complete conceptual match: the achievement of ESSPROS is its accounting structure similar to the National Accounts (benefits and their financing) at the level of the statistical unit of ESSPROS system (the scheme). There is also a link to the risks or needs to social benefits in the National Accounts. The three elements underlined in italics in the quotation above are the first main aspects that need be analysed as possible sources of differences Accounting structure, principles and conventions The national accounts system records transactions, stocks and other flows for all sectors of an economy. It presents the transactions in a sequence of accounts and of balancing items which describe production, distribution and final uses of resources. The distinction between current and capital transactions plays a central role, with accumulation accounts providing the link between flow accounts and balance sheets. ESSPROS only records the distributive transactions that are included in its scope and the administration costs of social protection schemes. The definition of distributive transactions is not given in the manual and reference is implicitly made to the national accounts, where they are defined as transactions distributing value added and transfers redistributing income and wealth (ESA ). ESSPROS main accounting distinction is between expenditures and receipts of the resident social protection schemes, with a presentation that is similar to that of government finance statistics rather than to the sequence of accounts presentation 5. The central category of expenditure is social benefits and the central category of receipts is social contributions, but ESSPROS also records other categories of expenditures and receipts. ESSPROS does not include accumulation accounts, so that the distinction between current and capital transactions is not relevant. However, this also means that capital transfers, as well as current transfers, which are both cases of national accounts distributive transactions, are recorded if they meet the relevant ESSPROS definitions. EM treats general aspects regarding national accounts in chapter 8 of part I, on accounting conventions, while appendix VI explains the differences between ESSPROS and the ESA These parts of the EM need to be reviewed and updated, in particular to take into account the changes introduced by ESA Proposals for changes to the EM are discussed by the Eurostat task force on social protection methodology, which has already worked on several points covered in this document. For the various issues analysed by the task force, this document presents a summary of the results of the discussion and refers to specific task force documents for more detail. In general, ESSPROS has adopted the accounting rules of the national accounts for transactions, in particular as concerns valuation and time of recording. 5 For the government finance statistics presentation, see ESA See ESSPROS Manual I, chapter 8 on accounting conventions and Appendix VI for the differences with national accounts (ESA 1995). Also relevant is Appendix VII of the EM, on the classification in ESSPROS of various government disbursements. 7

8 Valuation aspects may be relevant for differences regarding benefits in kind, while for cash transactions no general valuation issues seem possible. In both systems, benefits in kind produced by market units are valued at market price and those produced by non-market units are valued at the sum of costs. The costs elements considered are the same, that is: compensation of employees, intermediate consumption, consumption of fixed capital and taxes less subsidies. However, although the principles coincide, it seems possible that in practice there can be differences if the calculations are made by different compilers. This refers in particular to the consumption of fixed capital component, which is also determined by accounting conventions and modelling. Concerning all costs components, there can also be differences in the delimitation of costs that are taken into account. This can be related to general issues such as the allocation of overhead costs, or be specific to ESSPROS compilation as regards the borderline with administration costs. For time of recording of transactions, ESSPROS applies the national accounts accrual principle (as opposed to the cash principle). One case of possible difference regards the time of recording of social contributions payable to government, because ESA 2010 has introduced specific rules for the application of the accrual principle to this case (see ESA and section 4). No similar rule has been included in the EM as yet. Finally, differences may also arise if corresponding transactions are arranged differently in the two systems 7. This may concern the treatment of some kind of social contributions (see 3.1 on rerouted contributions) as well as the split between benefits in kind and administration costs Scope of the social risks or needs The relief from the burden of social risks or needs is at the basis of ESSPROS definition of social protection as well as of the definition of social benefits in national accounts. The scope of social risks in ESSPROS is however narrower than in national accounts. EM I 16 defines social protection as all interventions from public or private bodies, intended to relieve of the burden of certain risks or needs, provided there is neither a simultaneous reciprocal nor an individual arrangement involved. The reference to "bodies" excludes transfers between households from social protection, while the borderlines with simultaneous reciprocal and individual arrangements are described in chapter 2 of the EM. In the EM, the scope of social interventions is defined conventionally to cover 8 risks or needs that correspond to the 8 functions of social protection included in ESSPROS (see table 1). Similarly, for national accounts, ESA defines social benefits as transfers intended to relieve households from the burden of a number of risks or needs, made through collectively organised schemes 8, or outside such schemes by government units or NPISHs. However, ESA 2010 delimits a wider scope for social benefits, which contains the same risks or needs of ESSPROS but also education 9. Table 1 presents a comparison between the scope of social protection in ESSPROS (rows) and that of social benefits in national accounts (columns). 7 Rearrangement of transactions is described in ESA It refers to three possible cases: rerouting, partitioning and recognising the principal party to a transaction. 8 See point 2.4 below. 8

9 Table 1 Risks or needs in social protection (ESSPROS) and in social benefits (national accounts) ESSPROS 1. Sickness/Health care 2. Disability 3. Old age 4. Survivors 5. Family/children 6. Unemployment 7. Housing 8. Social exclusion nec National accounts (a) sickness (b) invalidity, disability (c) occupational accident, disease (d) old age (e) survivors (f) maternity (g) family (h) promotion of employment (i) unemployment (j) housing (k) education (l) general neediness Borderline cases may concern, for example, the distinction between education (that is excluded from ESSPROS) and ESSPROS functions such as family/children. Although ESA lists separately "promotion of employment" (h) and "unemployment" (i), social benefits in both areas seem to correspond to ESSPROS function "unemployment" (to be confirmed) Statistical unit The statistical units considered in ESSPROS and in national accounts are different. The statistical unit in the ESSPROS Core system is the resident social protection scheme 10, of which the system records expenditures and receipts. In national accounts, the relevant statistical unit for distributive transactions is the institutional unit that records the payment or the receipt. The EM clarifies the possible links and differences between social protection schemes and national accounts institutional units, in particular in I 43: Social protection schemes are concerned exclusively with redistribution and not with production. They are supported by institutional units and are not themselves institutional units. Some institutional units support social protection schemes as their main activity; for example, social security funds, pension funds, welfare funds or mutual benefit societies. Others run social protection schemes only as a subsidiary activity; for example, employers, insurance companies or trade unions. 9 See ESA in which education is listed as point (k). Also social benefits for "promotion of employment" in ESA 4.84 (h) may fall outside the ESSPROS unemployment function (grey cell in table 1). According to the ESA, outside the scope of social risks or needs in national accounts, but included in social transfers in kind, are government (and presumably NPISHs) interventions in recreation, culture and sport (see ESA ). In practice, some countries record also D62 in COFOG 8.1 (recreational and sporting services) and 8.2 (cultural services). In addition, several countries record D62 also in collective COFOG functions. 10 The definition of social protection schemes is analysed in more detail in section 2.4, together with the social insurance schemes defined in the ESA. 9

10 Goods and services provided in kind to beneficiaries are considered to be produced by the institutional unit (or units) which support the scheme in question, or else to be purchased from other institutional units. Of specific importance for the purposes of this document are the cases in which there is not a one to one correspondence between ESSPROS-defined social protection schemes and national accounts institutional units. These are considered in the last paragraph of EM I 43: Institutional units can support more than one social protection scheme, when they administer and provide very diverse types of social benefits. On the other hand, a single social protection scheme can be supported by several institutional units, where each is responsible for, say, a specific geographic region, group of enterprises or category of workers. The first case, where one institutional unit supports more than one scheme, implies that the transactions between the schemes supported by the same institutional unit are not recorded in national accounts but only in ESSPROS. This may refer in particular to ESSPROS transfers between schemes and rerouted social contributions, but it cannot concern social benefits. The second case, where one social protection scheme is supported by several institutional units, may imply for example that the transactions of the scheme cannot be attributed to one institutional sector only, if the units that support the scheme belong to different sectors according to the national accounts definitions Social protection schemes (ESSPROS) and social insurance schemes (national accounts) Before moving on to an analysis of the transactions of social protection schemes, it is useful to complete this overview by introducing the social protection schemes as defined in ESSPROS and compare them with the ESA-defined social insurance schemes. ESSPROS defines a social protection scheme as "a distinct body of rules, supported by one or more institutional units, governing the provision of social protection benefits and their financing" (EM I 42). EM I 44 clarifies that the body of rules "may be established de jure, by virtue of laws, regulations or contracts, or de facto, by virtue of administrative practice". ESSPROS therefore adopts an extensive definition of scheme, in which the condition to be met is that it is possible to draw up a separate account of receipts and expenditures ( 42, (i)). Concerning expenditures, the EM mentions that preferably social protection schemes are chosen in such a way that they provide protection against a single risk or need and cover a single specific group of beneficiaries (see I 42 (ii)). Regarding schemes receipts, ESSPROS includes also imputed receipts as in the case of social assistance schemes (which are financed implicitly through imputed government contributions) and of non-autonomous schemes run by employers (which draw on imputed employers' contributions - see EM I 45, second paragraph). The EM (chapter 4) classifies social protection schemes into five groups, according to the following characteristics: decision-making, legal enforcement, establishment of entitlements, scope and level of protection (see rows in table 2). On the other hand, national accounts have a more restricted definition referring to social insurance schemes (see ESA and 17.01): "participants are obliged, or encouraged, to take insurance against certain social risks or circumstances that may adversely affect their welfare or that of their dependants". In addition, a necessary condition is that social contributions are paid in order to secure entitlements to social insurance benefits. 10

11 Social benefits given outside social insurance schemes instead consist of social assistance benefits in cash or of social transfers in kind, which are provided directly by government and NPISHs 11. Social insurance schemes are treated in more detail in chapter 17 of ESA 2010, in particular with regard to pensions 12. At a general level, ESA 2010 subdivides social insurance schemes into social security schemes (which are controlled by government and broadly correspond to the subsector social security funds) and other employment-related social insurance schemes. As indicated in table 2, Social insurance schemes organised by government units for their own employees as opposed to the working population at large are classified as other employment related schemes and not as social security schemes (see ESA ). Other forms of intervention with social benefits are recorded as social assistance or as social transfer in kind 13. The links between ESSPROS groups of schemes according to the five groups described in EM chapter 4 of part I and the various forms of intervention with social benefits in national accounts are presented in table 2. Table 2 ESSPROS groups of schemes and forms of social benefits provision in national accounts ESSPROS groups of schemes National accounts 1. Decision-making Government-controlled schemes Not government-controlled schemes schemes for employees other not-gov controlled schemes 2. Legal enforcement Compulsory Non-compulsory 3. Establish. of entitlements Contributory Social insurance schemes Social security schemes (Social security funds S.1314) Other employment related (any sector, incl. other S.13) Non-contributory 4. Scope Universal General Special including public servants (431) 5. Level of protection Basic Supplementary Social assistance and other STK (*) not in social security General government (S.13) 2.5. Scope of national accounts social benefits and ESSPROS ESSPROS classification of benefits by function of social protection and the national accounts Classification of the Functions of Government (COFOG) for government expenditure NPISHs (S.15) (*) Excluding education, cultural and entertainment benefits As mentioned already (see table 1) ESA 2010 delimits the scope of social benefits referring to certain social risks or needs addressed by the benefits. However, in sector accounts social benefits are recorded without any distinction by risk or need. 11 In other words, the social assistance schemes mentioned in EM I 45 are not defined in national accounts. 12 The concepts of social insurance, social security and social assistance were already defined in the ESA 1979 and 1995, and they are used in ESSPROS methodology. ESA 2010 includes a new chapter 17 on Social insurance including pensions that did not exist in previous editions and provides additional classifications and accounting examples for social insurance schemes. In the ESA95, social insurance schemes were treated in Annex III. 13 See ESA

12 It is only for social benefits paid by general government that a detail by function 14 is available from Government Finance Statistics the data broken down according to the Classification of the Functions of Government (COFOG). Regarding benefits provided by Non-profit Institutions sserving hhouseholds (NPISHs) some data by social risks/needs can be derived from final consumption expenditure of NPISHs according to product, available from the Use table. The next section considers the comparison between the classification of social benefits in ESSPROS and in COFOG and section refers to expenditure by NPISHs in relation to social protection Use of the Classification of the Functions of Government (COFOG) for government expenditure An first important point concerning COFOG is that ESA refers to COFOG groups to distinguish between collective and individual government consumption expenditure. Only individual consumption groups in COFOG are relevant for social benefits 15 and therefore for the comparison with ESSPROS. COFOG is an international classification structured in 10 Divisions, of which only 2 are relevant in relation with ESSPROS: division 7 (Health) and division 10 (Social protection). There are strong links between the definition of COFOG division 10 and ESSPROS. The explanatory notes of COFOG 10 inform that the social protection functions and their definitions are based on the 1996 European System of integrated Social Protection Statistics (ESSPROS) of the Statistical Office of the European Communities (Eurostat). In ESSPROS, social protection includes health care, but this division does not include health care. Health care is covered by Division 07. Hence, medical goods and services provided to persons who receive the cash benefits and benefits in kind specified in groups (10.1) through (10.7) are classified under (07.1), (07.2) or (07.3) as appropriate. 16 Although not explicitly stated in COFOG, also individual public health services recorded in 07.4 may be provided to protected persons and therefore correspond to benefits recorded in ESSPROS (see EM II 20C). However, group 10.1 of COFOG covers both sickness and disability. In COFOG, the distinction between sickness and disability appears at the lower level of classes ( for sickness and for disability), but COFOG data at class level are not generally available. The remaining 6 groups of COFOG division 10 correspond to ESSPROS functions, as follows: Old age; Survivors; Family and children; Unemployment; Housing; Social exclusion n.e.c. In conclusion, regarding sickness, health and disability, a comparison between COFOG data for social benefits (by COFOG group) and ESSPROS data (by social protection function) is possible only for the aggregate of the three headings (see table 3). 14 The terms risk, need, function and purpose are used interchangeably in this context. COFOG is subdivided into divisions (first digit), groups (second digit) and classes (third digit). See 15 Although in practice several EU countries record D62 in collective COFOG functions. This has to be taken into account when comparing data. 16 See Eurostat Manual of COFOG statistics, p ( and also the United Nations website on COFOG: 12

13 Table 3 - Table of correspondence by function for benefits paid by government Functions of government ESSPROS functions 1. Sickness/Health care 2. Disability 3. Old age 4. Survivors 5. Family/children 6. Unemployment 7. Housing 8. Social exclusion nec COFOG Cofog Cofog 10.1 Cofog 10.2 Cofog 10.3 Cofog 10.4 Cofog 10.5 Cofog 10.6 Cofog 10.7 Social Health, sickness and Family and Old age Survivors Unemployment Housing exclusion disability children n.e.c. Concerning the types of social benefits available from national accounts according to COFOG, both benefits in kind and benefits in cash can be obtained from published data for most of the member states 17. Benefits in kind can also be split between non-market production and purchased market production. Data for government sub-sectors, in particular for social security funds, are provided voluntarily by member states, except Austria, Germany, Ireland, Malta and the UK. Given that COFOG covers only general government, it must be expected that benefits recorded in ESSPROS are not lower than those recorded in COFOG for each function and for each kind of benefit 18. However, for benefits in kind, administration costs of social protection schemes have to be taken into account (see section 3 of this document). This is because administration costs are treated in ESSPROS as a separate category of expenditure but in COFOG they may be included in the value of transfers in kind. COFOG explanatory notes indeed include "administration of social protection schemes" in the description of the various groups of division 10. Further data analysis at national level is required in this context in order to identify the sources of differences National accounts data on benefits provided by NPISHs Sector accounts provide data for total social benefits paid by NPISHs, broken down between benefits in kind (item D63, social transfers in kind) and benefits in cash (item D62). However, sector accounts do not distinguish social benefits according to function or purpose. 17 Although the national accounts item D63 is not published in the COFOG database, D63 can be derived from Individual final consumption expenditure of government (P31 of government = D63 of government) or also, if P31 is not available, from data for Final consumption expenditure of government (P3) allocated to COFOG individual functions. 18 For housing, ESSPROS benefits in cash are zero by definition (see section 3 of this document). Therefore a comparison is possible only for total benefits. 13

14 An international classification by purpose similar to COFOG is available also for NPISHs. This is the Classification of the Purposes of Non-Profit Institutions Serving Households (COPNI). However, data by COPNI are not generally available. In particular, differently from COFOG data, they are not included in the ESA2010 transmission programme. NPISHs operating in social protection are classified by COPNI under (Social protection services). COPNI explanatory notes inform that this class includes the following NPISHs 19 : - retirement homes for elderly persons, residences for disabled persons, rehabilitation centres providing longterm support for patients rather than health care and rehabilitative therapy, schools for disabled persons where the main aim is to help students overcome their disability; - organizations that provide home-cleaning services, meal programmes, day-care centres, day-care services, holiday-care and transport services for elderly and disabled persons; - orphanages, crèches, nurseries, play schools, day-care centres and other child-minding facilities; - organizations that provide counselling, guidance, arbitration, fostering and adoption services for families; - single-parent agencies and services, family violence shelters; - organizations that provide counselling to persons who are disaster victims, victims of assault and abuse and potential suicides; - organizations that provide temporary shelters or housing for homeless persons; - organizations that provide long-term support for persons who are gamblers, alcohol abusers and substance abusers; - organizations that provide cash assistance, food, clothing, shelter and other services to persons who are refugees, immigrants, destitute and low-income earners; - organizations that seek to improve conditions in prisons, including prison visitors and social rehabilitation; - organizations that seek to provide opportunities for economic or social development for deprived groups of persons, whether in their own country or abroad. For social transfers in kind by NPISH the breakdown by 64 products of the NPISH Final consumption expenditure from the Use table 20 can be a source generally available for estimating the part of benefits in kind provided by NPISHs that falls within the scope of ESSPROS. Table 4: Synoptic presentation of sources of differences between ESSPROS and national accounts ESSPROS National accounts Detail available in NA data Possible sources of differences in data Possible obstacles for data comparison GENERAL Records only transactions of resident social protection schemes Record transactions, stocks and other flows for all sectors of an economy - Social benefits and social contributions for total economy and sectors - Social benefits by function (COFOG) for the government sector - No difference in general definitions, but: - Administration costs of social protection schemes are not specifically - Generally, not enough detail in national accounts - In particular, property income, taxes and other transfers are included 19 More detail on COPNI can be found on the website of the United Nations: 20 Also for NPISH, as for government, P31=D63. 14

15 ACCOUNTING Transactions recorded ESSPROS Records only distributive transactions and administration costs Presentation Classifies transactions into expenditures and receipts Benefits in kind Use national accounts principles for valuation (market price or sum of costs) National accounts Record nonfinancial transactions (in products, distributive, others) and financial transactions Applies a sequence of accounts representing production, distribution and final use of resources Valuation at market price or sum of costs - Social benefits and contributions, and other transactions, for the subsector social security funds Detail available in NA data defined in national accounts Possible sources of differences in data indistinguishably in NA data, except for social security funds - Specific problems for administration costs Possible obstacles for data comparison see above see above Administration costs cannot be identified in national accounts data - for non-market units, they are included in output, consumption and transfers in kind - for service fees charged to schemes they are coded D.61SC and recorded as output of social insurance schemes administration and households consumption expenditure ESSPROS expenditures correspond to uses of sectors and total economy. ESSPROS receipts correspond to resources of sectors and total economy Benefits in kind are separately available only for government and non-profit institutions (social transfers in kind) No difference in theory, but the practical application of the principles may lead to different results if calculations are made by different compilers - Isolating benefits in kind for sectors other than government and non-profit institutions - Taking into account administration costs Current and capital transactions Both are included in expenditures and receipts Capital transfers are recorded as a separate category Detail by function of current and capital transfers exists for 15 - ESSPROS administration costs may be included in social transfers in kind (non-market production) Some ESSPROS social benefits and contributions are It is difficult to identify these cases in the data

16 Rerouting of transactions SCOPE AND DETAIL BY FUNCTION Scope of social benefits Detail by function STATISTICAL UNIT AND DETAIL Social contributions paid by one scheme to another for the benefit of the protected person are recorded separately from benefits (rerouted social contributions) ESSPROS Covers 8 social protection functions: 1) Sickness/health care 2) Disability 3) Old age 4) Survivors 5) Family/children 6) Unemployment 7) Housing 8) Social exclusion nec Data by function are compiled at scheme level ESSPROS alternative to social benefits and social contributions Different treatments for this type of social contribution are observed in countries National accounts Cover all social benefits, in particular: - include social benefits in education - include social benefits in culture, education and sport - in practice, several countries record some benefits in cash by government under collective COFOG groups (which are also outside the scope of ESSPROS) Data by function (COFOG) for government benefits have a breakdown consistent with ESSPROS National accounts government expenditure (COFOG) None Detail available in NA data - Social benefits for total economy and sectors - Social benefits by function (COFOG) only for the government sector. Data for the subsector of government social security funds are provided voluntarily by member states, except Austria, Germany, Ireland, Malta and the UK. - Transfers in kind of NPISH by product from the Use table. Sickness and disability are grouped together. Health care is in a separate COFOG Division. Detail available in NA data treated as capital transfers in national accounts Equal differences in the value of social benefits and of households contributions, if this type of contributions are rerouted in national accounts through benefits paid to households and households contributions Possible sources of differences in data Different treatments of borderline cases between functions to be included or excluded from ESSPROS Different treatment of borderline cases between functions Possible sources of differences in data In principle comparison is possible once the country treatment in national accounts is known Possible obstacles for data comparison - Only for data of government expenditure the COFOG breakdown for social benefits can be linked to ESSPROS functions - For other sectors, no breakdown of social benefits by function is available - Only for data of government expenditure the COFOG breakdown for social benefits can be linked to functions included in or excluded from ESSPROS - For other sectors, no breakdown of social benefits by function is available Possible obstacles for data comparison 16

17 BY SECTOR Definition Social protection schemes: sets of rules governing benefits and their financing Social protection schemes may require or not the payment of social contributions Detail by sector Social protection schemes are classified between Government controlled and Nongovernment controlled Detail by scheme Data compiled at scheme level The institutional units that record the relevant transactions as use (for expenditures) or as resources (for receipts) Social insurance schemes require the payment of social contributions. They are not institutional units, although accounts can be drawn for them Institutional units are allocated to sectors using the criterion of control Data compiled for institutional units Data for social security funds Units and their transactions are allocated by 5 resident sectors: government, nonprofit institutions, financial corporations, nonfinancial corporations and households Transactions of social insurance schemes are available only for social security funds Transactions between social protection schemes belonging to the same (sub-)sector institutional unit are not recorded in national accounts There is less detail by sector in ESSPROS than in national accounts There is more detail by scheme in ESSPROS than in national accounts This cannot apply to social benefits and should not represent a major issue It is problematic to match ESSPROS schemes transactions data and national accounts data by sector No or very little comparison of data by scheme is possible 17

18 2.6. ESSPROS transactions compared to national accounts cross-classification and tables of correspondence To summarise the above presentation, ESSPROS Core system is not concerned with production activity and provides detailed data for a certain subset of transfers that in national accounts are recorded among distributive transactions. Besides distributive transactions, the Core system also records, as expenditures, administration costs charged to the scheme (EM I 36). It is therefore possible to consider the relevant transactions according to the respective categories of ESSPROS and of the national accounts and develop tables of correspondence between them. Taking into account the main possible sources of differences and the correspondences described in section 2 (see in particular table 4), section 3 of this document contains an analysis of the various expenditures recorded in ESSPROS and tries to identify their recording in accordance to the national accounts methodology (ESA 2010). This approach first of all provides an overview of the field covered by ESSPROS in the general context of the economy as represented in national accounts and can be used as dashboard for the conceptual analysis of the links and of the differences. A second set of uses concerns data analysis, quality checks and data estimation. This type of application clearly requires not only working on conceptual links, but also filling tables with the data in provenance from the two systems, at a certain level of detail. Marginal totals may be used to define accounting constraints which can serve as validation or estimation tools, for example in order to make cross comparisons, check the adjustments for known differences, detect and classify the sources of (possibly all) discrepancies. Often, in practice, sufficiently detailed breakdowns are not available from published data. In the rest of this document we refer mainly to the conceptual interpretation of the table. We use the vertical dimension of the table for ESSPROS classifications, and the horizontal dimension for national accounts classifications. More specifically, we look at the various issues from the point of view of ESSPROS, so that the main objective of the exercise is to isolate as much as possible the national accounts sub-items where the ESSPROS transactions listed on the vertical dimension are to be recorded according to the national accounts methodology. Each cell of the table contains the transactions that are conceptually classified according to the two classes that intersect in that cell. Some combinations can be excluded a priori, which is represented by empty cells. If the two classifications had a one to one correspondence, non-empty cells could be arranged on the main diagonal of the table. In practice, one has to look for correspondences between partially overlapping classifications in which each item (row or column) of one classification corresponds to a small number of items of the other classification. As mentioned before, ESSPROS records only distributive transactions and administration costs, which are recorded among expenditures. In particular, national accounts records social benefits and social contributions among redistributive transactions, in the secondary distribution of income account that has disposable income as balancing item. However, other kinds of distributive transactions that feature in national accounts primary distribution of income account, such as property income, are also recorded in ESSPROS. For administration costs establishing correspondences is more problematic (see below). 18

19 3. Cross classification of Expenditures to support data comparison In national accounts any non-financial transaction is recorded both as a use of the institutional unit and sector for which the transaction is payable and as a resource of the institutional unit and sector for which the transaction is receivable. For example, social benefits are recorded as uses of the resident units granting the benefits and as resources of households. In addition, if one of the counterparts of the transaction is non-resident, national accounts also record the same kind of flows among current transfers with the rest of the world. On the other hand, ESSPROS records the expenditure of the resident social protection schemes without distinction between resident and nonresident beneficiaries 21. Therefore, in looking for correspondences between ESSPROS expenditures and the national accounts, one has to consider the relevant national accounts transactions as recorded among the uses of resident units General overview of the correspondence for expenditure Concerning expenditures of social protection schemes, ESSPROS central category is social benefits, defined as transfers to households, in cash or in kind, intended to relieve them from the financial burden of a number of risks or needs (EM I 8). Most of the ESSPROS methodology concerns detailed classifications of social benefits, as presented in particular in part II of the EM. Besides social benefits, ESSPROS records three other kinds of expenditures, namely administration costs, transfers to other schemes and, as a residual category, other expenditure (see the upper part in figure 1). The lower part of figure 1 presents a very general view of the position of the ESSPROS-related expenditure transactions in national accounts. Social benefits are part of distributive transactions (first blue box to the left). As explained above, the scope of social benefits in national accounts is larger than in ESSPROS because of the larger set of social risks or needs considered. Generally, the other types of ESSPROS expenditure correspond in national accounts to distributive transactions other than social benefits (second rectangle in the first row), but for administration costs corresponding transactions should be looked for also among other transactions that are not distributive (third rectangle in the first row). The main types of social benefits defined in national accounts are shown in the last two boxes at the bottom of figure 1: 1) Social transfers in kind (STK), which are social benefits in kind provided by general government and non-profit institutions serving households. 2) Social benefits other than social transfers in kind, which consist mainly of cash benefits but also include social benefits in kind provided by schemes outside general government and outside non-profit institutions serving households. 21 This distinction is given by some countries on a voluntary basis. 22 This corresponds to the uses of total economy (S1) in ESA 2010 sector accounts. 19

20 Figure 1 Main categories of expenditures in ESSPROS and related transactions in national accounts ESSPROS Social benefits Administration costs Transfers to other schemes Other expenditure Benefits in kind Cash benefits National accounts Social benefits (part of distributive transactions) Other distributive transactions Non-distributive transactions Social transfers in kind (STK) Social benefits other than STK A high-level correspondence table considering in some more detail the various items just described for expenditure is presented in table 5. In table 5, X is used for cells that are expected to contain the most typical correspondence between the two classifications, while x is used to indicate: i) other possible but less typical and/or less important correspondences; ii) cases where a priori there are no indications on prevalent correspondences. For example, the first row says that ESSPROS cash benefits will normally be recorded in national accounts as Social benefits other than STK, but there can be special cases in which they are recorded as capital transfers 23. Examples of case ii) are transfers to other schemes and other expenditure other than property income. The column STK shows that for social benefits there is not a one to one correspondence between the two main categories defined by ESSPROS (cash and in kind benefits) and by national accounts (STK and other than STK). It is only for general government and NPISHs that the national accounts Social benefits other than STK do not include benefits in kind. In addition, rerouted contributions may be included in the value of national accounts benefits in cash. 23 See the Task Force and Working group documents on the Treatment of capital transfers in ESSPROS for more detail. 20

21 Total ESSPROS Table 5 High-level correspondence between ESSPROS expenditure of social protection schemes and national accounts transactions (S.1 paid) ESSPROS National accounts Social benefits Social transfers in kind (STK) Social benefits other than STK Other distributive transactions Property income Current taxes on income, wealth, etc Other current transfers Capital transfers Other transactions Not recorded 1 Social protection benefits cash benefits X x benefits in kind X x 2 Administration costs x x 3 Transfers to other schemes rerouted social contributions x x x other transfers to other schemes x x x 4 Other expenditure property income X other expenditure other than property income x x x Out of ESSPROS scope, of which: Education and other social benefits not in social protection x x Investment income payable on pension entitlements x Total National Accounts Social benefits are the central category of ESSPROS expenditure and benefits in kind are considered in more detail in part 3.2. Future work may be devoted to more detailed breakdowns for social benefits in cash, in particular as regards pensions. The rest of this section describes the correspondences for rows 2, 3 and 4 of table 5. Administration costs Regarding administration costs, row 2 shows that they may correspond with STK (when the scheme is administered by a non-market unit) or with Other (non-distributive) transactions 24, when the scheme is administered by a market unit. More detail on administration costs can be found in the task force document Administration costs in ESSPROS of November 2016, of which a summary is given below. They will also be considered in section 3.2 in connection with their borderline with social benefits in kind. EM defines administration costs as "the costs charged to the scheme for management and administration thereof". They "include outgoings on registration of beneficiaries, collection of contributions, administration of benefits, inspection, reinsurance, financial management and general overheads" (see I 102 and I 102A). More detail is given by EM I 130, that concerns valuation of administration costs. Two types of units administering a scheme are distinguished: a) Commercial insurer: administration costs are valued by the actual fee charged (plus any other management costs incurred by the scheme, such as attendance fees for the board of governors). 24 Having in mind that ESSPROS records only distributive transactions and administration costs, the latter are the only case for which a correspondence with non-distributive transactions is possible. 21